Ranking the PMs/Presidents on the basis of GDP

Floyd Norris, the Chief Financial Correspondent and a blogger on The New York Times has a very interesting analysis on G.D.P numbers in the United States (US). He states that the government has limited influence on the economy and the president can have limited influence on government policy.

He says that

Normal economic cycles mean that growth is likely to be less impressive for a president who enters office at the end of a boom, as George W. Bush did, and better for one who enters when growth is weak, as Bill Clinton and Ronald Reagan did. If normal cyclical factors return, and President Obama has a second term, his record should end up much better than it currently appears. If he loses, he could be like Gerald Ford, who also took office during a deep recession.

He also said that all the presidents except George W. Bush (Jr. Bush) and Barack Obama joining the office after World War II have done fairly well having a growth ranging from 2.2 per cent to 5.4 per cent. It is with George H. W. Bush (also called as Sr. Bush), the number started faltering. If Obama by any means gets nominated for a second term, the GDP growth may turn rosy and better than it currently appears as said by the theory of normal economic cycles. The table given below also reflects that Democratic Presidents performed better than Republican except under Reagan.

What does India’s GDP say under different Prime Ministers?

The table 2 depicts the picture which is entirely different. India boasts of multi-party system unlike in US where they are two major parties.  Post independence era, India was ruled mostly by Congress before given a break in 1977 to Janata Party, a party coming into existence after the famous Jay Prakash Aandolan. Immediately after independence under Pandit Nehru regime, the GDP grew at an average rate of 3.8 per cent which decreased marginally to 3.6 per cent under Mrs. Gandhi’s regime. Janata Party, a non-congress government came into ruling under Morarji Desai and didn’t disappoint the country. They delivered 6.5 per cent on an average before faltering to -5.2 per cent under Charan Singh regime. This is the first and only PM’s tenure in which India showed a negative GDP growth. Congress and Janata Dal swiftly changed powers and scored an average GDP score ranging from a low of 5.2 per cent to a high of 6.1 per cent.



Narasimha Rao government could not get much benefit after opening of Indian economy and could not score well in terms of numbers. The number nosedived further to 5.2 per cent. Janata Dal came to power for a short tenure and gave a comfortable growth of 8 per cent but faltered again to 4.3 per cent under H D Deve Gowda. Bhartiya Janta Party, a reformed version of Janata Party delivered an average GDP figure of 5.9 per cent. At the end of his tenure, the country GDP went as high as 10 per cent as he rationalized many reforms in the country. Dr. Manmohan Singh, the current Prime Minister and the then Finance Minister when India opened its economy scored an impressive figure of 8.6 per cent. However, India also witnessed many scandals and high level corruptions under his tenure, causing the country’s exchequer a loss of billions of dollars.

Overall, on an average, Congress gave an average GDP figure of 4.91 per cent during their tenures while non-Congress governments gave an average GDP figure of 4.42 per cent.

In India, the strong consumption story and Next’s Trillion Dollar opportunity has worked really well in recent years which helped Congress a lot. However, the figures also worsened in terms of increased deficits and borrowings as the government went for high spending on social measures schemes. Though interest rates are less now in comparison to 90s, the high interest rates (real  saving interest rate) are decelerating the growth and affecting the overall buildup of India a lot.

Hope we will get the best out of it and India will bounce back!

Happy Investing!

-          Amar Ranu



Fiscal Deficits at sub-5.5 per cent vs Higher Borrowing – which one to stick with?

Too many cooks spoil the broth! Rightly said... Post the global financial crisis, many countries – developed and emerging economies went for expansionary monetary and fiscal policies to revive their slowing economy. In India too, the slowdown of economy forced the Central Bank, the RBI and Central Government to announce a series of monetary and fiscal policies which shook the Indian Government’s finances. Three major expenses like provision for Sixth Pay Commission, Loan Waiver and MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Program) and various other subsidies including policy rate cuts led to significant intensification of the India’s Fiscal Deficit.

These unplanned expenditures in terms of loose policies and subsidies have badly affected the fiscal deficits. For Fiscal Year 2010-11, the Central Government fiscal deficit and combined gross fiscal deficit have been pegged at 8.2 per cent. However, there is an apprehension that it can shoot up further. In FY 2009-10, the fiscal deficit was 6.8 per cent of GDP. For FY 2011-12, it has been projected to bring it down to 4.4 per cent.

So, what happens if the fiscal deficit shoots up?

It means that the government will borrow extra to finance their planned and unplanned expenditures. If the government borrows extra for its spending, the level of money supplies rises which may compel to print more money, thus, leading to a hike in inflation rate. 

Current Scenario

With the improvement in economic conditions, the RBI has rolled back many of its accommodative measures introduced in year starting from 2008-09 bringing the policy rates to pre-crisis level. The net borrowing of Rs. 3.81 lakh crore will be executed smoothly except at few occasions where it has been devolved to PDs. However, the 3G and WIMAX auctions which collected worth Rs. 75,000 crore created the liquidity fissures which became a daily headache for RBI. In many occasions, the RBI has reiterated its comfort in repo borrowing up to 1 per cent of Net Demand and Time Liabilities (NDTL). However, the borrowing has been in range of over 2 per cent of NDTL which prompted the RBI to cut the SLR to 24 per cent and also introduced bond repurchase worth Rs. 48,000 crore under OMOs in four tranches.

The tight liquidity scenario was contemplating that the government may go for cancellation of some of its regular weekly borrowing as it has some unspent revenues lying with them. However, the Finance Ministry found support after the Nominal GDP data was released which rose on high inflation and on account of new series in headline inflation as measured by WPI. The nominal GDP
which expanded 19.8 per cent in the first half of the fiscal year 2010-11 provides the room for additional borrowing if the growth rate is intact in the 2^nd fiscal and the budgeted borrowing would amount to 5 per cent of the GDP only. The nominal GDP figures have risen due to burgeoning high
inflation rates which have been in double for most part of years and a new inflation index i.e. 2004-05. 

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Since the fiscal numbers are calculated in current prices and if the government sticks to the number plan, it may have an additional room to borrow. The 5.5 per cent budgeted Fiscal Deficit of the GDP was thought of on account of assumption of 12.5 per cent growth in nominal GDP. However, it has grown at 19.8 per cent in the first half of the FY 2010-11; so the government may announce in reduction of Fiscal Deficit number at sub-5.5 per cent or may go for additional borrowing.

Given the tight liquidity scenario, it is unlikely that they will go for additional borrowing.  However, the quantum of OMOs done totaling Rs. 41,266 crore (in four tranches) may give a reason to borrow again beyond the budgeted specified limit if the liquidity improves in the financial system so as to finance its social schemes. After all, the election preparation is on!

Happy Reading!       - Amar Ranu